UPDATE 1-Swire Properties shares drop as parent sells stake

* Developer's shares up 39 percent this year prior to Thursday's decline

* Office portfolio, residential development attracting investors

(Updates with share-price movement, details on public float)

HONG KONG, Oct 4 (Reuters) - Swire Properties Ltd shares sank up to 4.4 percent after the Hong Kong unit of the developer's parent agreed to sell its direct stake in the group for HK$4.88 billion ($629.2 million), helping it towards meeting a regulatory requirement.

The Hong Kong subsidiary of Swire's British-based parent John Swire & Sons plans to sell 216.94 million shares, or 3.71 percent of the total share capital, in Swire at HK$22.51 apiece, according to a filing to the Hong Kong stock exchange. That is a 6.01 percent discount to the closing price on Wednesday.

The share sale will increase the public float in Swire Properties to 17.99 percent from 14.28 percent. The Hong Kong Stock Exchange requires a minimum public float of 25 percent.

John Swire & Sons will continue to hold a large indirect stake in Swire Properties through its holding in Swire Pacific Ltd , which owns 82 percent of the developer's shares.

BOC International, HSBC , J.P. Morgan and Morgan Stanley are managing the share sale, due to take place on Oct. 8.

John Swire & Sons had agreed not to sell any more shares for 90 days after an earlier sell-down of its position in August, but the banks agreed to waive that.

Swire Properties holds a sizeable portfolio of office properties in Hong Kong, one of the world's most expensive places to rent commercial space, and has also set a record price for an apartment in Asia with the sale of a unit in Opus, Frank Gehry's first residential property in the region.

The shares recovered some of their losses but were still down 3.3 percent at 0212 GMT, underperforming the 0.5 percent drop in the Hang Seng Properties index .

Swire Properties shares were up 39 percent so far this year before today's decline.